News and Opinion

 Yet another settlement involving unethical act by an investor

Steve Rattner, one of the co founders of the private investment firm Quadrangle Group, settled kickback allegations by paying $10 million involving New York pension fund.

News involving unethical act in the financial industry is not news anymore. I am not even surprised every time I hear about such cases. There have been numerous similar cases and almost every time, these rich and powerful executives manage to get away with paying a fine that seems really modest compared to the intensity of their illegitimate act.

What do you mean by kickback? Suppose you are the Human resource manager of a firm and need to hire a consulting firm for a contract. You see that the XYZ firm doesn't have a great past record and their work seems questionable. There are other consulting firms that are vying to land the contract but the XYZ firm pays you a million dollars to land the contract. The million dollars that XYZ gives you to land that contract is the kickback.

In addition to paying the $10 million, Steve Rattner also agreed not to appear before any public pension fund in the state of New York for five years. Is that punishment enough for an act that questions the ethics of these private equity firms? I don't think so. It justs gives you the impression that you can not care about the rules and use unfair means to accumulate millions of dollars and then worst case scenario is that you will have to pay a couple of million of dollars and not work in that state for a couple of years. That still gives these investors the opportunity to go to other states and exploit them. It is just like giving them another chance to commit an immoral and illegal act.

I think the judiciary needs to be more severe in dealing with such acts in the financial market. The industry has lost trust and it takes years and years of hard work to build that trust. These investment firms and executives are getting away pretty cheaply. Even after paying fines, they still make a profit. We need a set of rules that would make people think twice before committing such an act and also deter others from doing the same.